fma in emerging markets do early birds catch the worm or not ... …€¦ · emerging/transition...
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FirstFirst--mover advantages in mover advantages in emerging markets; do early birds emerging markets; do early birds
catch the worm or not?catch the worm or not?
Kristian JakobsenKristian JakobsenCenter for East European Studies,Center for East European Studies,
Department of International Department of International EconomicsEconomics and Management,and Management,Copenhagen Business Copenhagen Business SchoolSchool
Mail: Mail: [email protected]@cbs.dk
www.cbs.dk/staff/kristian_jakobsenwww.cbs.dk/staff/kristian_jakobsen
Research Research interestsinterestsnn First mover advantages studiesFirst mover advantages studies
JakobsenJakobsen, K. (2008). Competition for Markets in the Brewing Industry in , K. (2008). Competition for Markets in the Brewing Industry in Central and Central and Eastern Europe. In J. Eastern Europe. In J. LarimoLarimo (Ed.) (Ed.) Perspectives on Internationalization and Perspectives on Internationalization and International ManagementInternational Management, , VassanVassan YliopistonYliopiston JulkaisujaJulkaisuja, p. 299, p. 299--316. ISBN 978316. ISBN 978--952952--476476--228228--11
JakobsenJakobsen, K. (2007). First mover advantages in Central and Eastern Europ, K. (2007). First mover advantages in Central and Eastern Europe: A e: A comparative analysis of performance measures, comparative analysis of performance measures, Journal of EastJournal of East--West Business,West Business,13(1), p. 3513(1), p. 35--61.61.
nn Entry mode studiesEntry mode studies
Jakobsen, K., & Meyer, K. E. (2008). Jakobsen, K., & Meyer, K. E. (2008). Partial Acquisition: The overlooked entry mode. Partial Acquisition: The overlooked entry mode. In J. H. Dunning and P. In J. H. Dunning and P. GuglerGugler (eds.) (eds.) Progress in International Business ResearchProgress in International Business Research 2, 2, Elsevier Science, p. 203Elsevier Science, p. 203--226. ISBN 978226. ISBN 978--00--76237623--14751475--11
JakobsenJakobsen, K., & Meyer, K. E. (2007). Negotiating entry modes: Partial ac, K., & Meyer, K. E. (2007). Negotiating entry modes: Partial acquisitions in quisitions in transition economies. Currently, revise and resubmit at transition economies. Currently, revise and resubmit at International Business International Business Review.Review.
nn Corporate governance studiesCorporate governance studies
JakobsenJakobsen, K., & Thomsen, S. (2008). Corporate Governance and Global , K., & Thomsen, S. (2008). Corporate Governance and Global Competitiveness: The case of Competitiveness: The case of DaniscoDanisco, , Work in progressWork in progress..
JakobsenJakobsen, K., & Thomsen, S. (2008). Corporate Governance and Global , K., & Thomsen, S. (2008). Corporate Governance and Global Competitiveness: The case of ISS, Competitiveness: The case of ISS, Work in progressWork in progress..
Knudsen, J. S., Jakobsen, K., & Thomsen, S. (2008). Knudsen, J. S., Jakobsen, K., & Thomsen, S. (2008). Corporate Governance and Corporate Governance and Global Competitiveness of Nordic Firms: The case of Global Competitiveness of Nordic Firms: The case of NovozymesNovozymes, Work in , Work in progress.progress.
FMA in the FMA in the marketmarket placeplace
You discover a new product, process or
business model
You apply it in the market place
You become a firstmover!
Step 1. Step 2.
And will enjoy everlasting wealth and profit….
Perhaps?
First mover advantages and First mover advantages and disadvantagesdisadvantages
nn FF--M AdvantagesM Advantagesnn Quantity setting abilityQuantity setting abilitynn Short run monopoly rentShort run monopoly rentnn Preemption of resourcesPreemption of resourcesnn Moving down the Moving down the
cost/learning curvecost/learning curvenn Pioneer related marketing Pioneer related marketing
advantagesadvantages
nn FF--M disadvantagesM disadvantagesnn High uncertaintyHigh uncertaintynn Low imitation costLow imitation costnn Technological Technological
leapfroggingleapfroggingnn Incumbent inertiaIncumbent inertia
MC
Q
P
MRP
QPQF
MRF
The quantity setting PioneerThe quantity setting Pioneer
MRP = ?
Market conditions in Market conditions in emerging/transition economiesemerging/transition economies
nn The foreign entrant tend to have superior The foreign entrant tend to have superior technological, managerial and marketing technological, managerial and marketing capabilities versus local incumbents (Ownership capabilities versus local incumbents (Ownership advantages)advantages)
nn High growth rates in emerging/transition High growth rates in emerging/transition economieseconomies
Low competitive pressure and higher consumer conversion rates
FirstFirst mover mover advantagesadvantages in in emerging/transitionemerging/transition economieseconomies
nn FF--M advantagesM advantagesnn Quantity setting abilityQuantity setting abilitynn Short run monopoly rentShort run monopoly rentnn Preemption of resourcesPreemption of resourcesnn Moving down the Moving down the
cost/learning curvecost/learning curvenn Pioneer related marketing Pioneer related marketing
advantagesadvantagesnn Networking advantagesNetworking advantages
nn FF--M disadvantagesM disadvantagesnn High uncertaintyHigh uncertaintynn Small market size/high growth Small market size/high growth
ratesratesnn Institutional and infrastructural Institutional and infrastructural
cost related disadvantagescost related disadvantagesnn Incumbent inertia/mistake Incumbent inertia/mistake
proneprone
The The valuevalue of of waitingwaiting
Time
Option value
Pioneer’s option value
EntryEntry competitioncompetition
nn The act of entry is essentially the deployment of The act of entry is essentially the deployment of existing products and competences in a new existing products and competences in a new market settingmarket setting
nn Hence the option to enter is more than likely Hence the option to enter is more than likely shared with other potential entrantsshared with other potential entrants
EntryEntry timing timing choicechoice under under competitioncompetition
Time
Option value
Pioneer’s option value
Followers option value
TFTP
FirstFirst Mover Mover AdvantagesAdvantages in in Central and Eastern Central and Eastern EuropeEurope
A A comparativecomparative analysisanalysis of performance of performance measuresmeasures
StudyStudy design and motivationdesign and motivation
nn SeekSeek to to adressadress the the effecteffect of of competitioncompetition onon the the abilityability to to accrueaccrue superiorsuperior rent from rent from earlyearly entryentry
nn BasedBased onon subsidiarysubsidiary levellevel surveysurvey data from data from LithuaniaLithuania, , PolandPoland and and HungaryHungary
WhyWhy Central and Eastern Central and Eastern EuropeEurope??
1.1. The countries opened up to FDI around the The countries opened up to FDI around the same timesame time
•• A clear cutA clear cut--off dateoff date•• Improved cross country Improved cross country
comparability/generalizationcomparability/generalization2.2. Close proximity to some of the main sources Close proximity to some of the main sources
of FDI (Western Europe)of FDI (Western Europe)•• We can expect the level and intensity of FDI to be We can expect the level and intensity of FDI to be
high enough to satisfy an assumption of high enough to satisfy an assumption of competitive foreign market entrycompetitive foreign market entry
The The basicbasic hypothesishypothesis is is thatthat FirstFirstMoversMovers makemake a a tradetrade--offoff;;
takingtaking onon a a proportionallyproportionally higherhigher riskriskin in returnreturn for for higherhigher marketmarket shareshare
Performance Performance measuremeasure
nn Market shareMarket sharenn 0 to 100 value0 to 100 value
nn Industry performanceIndustry performancenn A factor output measure derived from 5 five point A factor output measure derived from 5 five point LikertLikert
scale variables indicating the perceived performance of the scale variables indicating the perceived performance of the respondents firm compared to its competitors (respondents firm compared to its competitors (Cronbach’sCronbach’salfaalfa = 0,9)= 0,9)
nn Performance satisfactionPerformance satisfactionnn A factor output measure derived from 3 seven point A factor output measure derived from 3 seven point LikertLikert
scale variables indicating the perceived performance of the scale variables indicating the perceived performance of the respondents firm relative to expectation (respondents firm relative to expectation (Cronbach’sCronbach’s alfaalfa = = 0,83)0,83)
ResultsResults
nn Order of entry is strongly and positively Order of entry is strongly and positively associated with associated with market sharemarket share
nn Neither Neither Industry PerformanceIndustry Performance nor nor Performance Performance SatisfactionSatisfaction are consistently associated with order are consistently associated with order of entryof entry
nn These results are consistent with the Meta These results are consistent with the Meta analysis by analysis by VanderWerfVanderWerf & & MahornMahorn (1997)(1997)
nn The study does however find evidence of an ”early The study does however find evidence of an ”early entry” performance advantage (how long the firm has entry” performance advantage (how long the firm has been in a market is positively associated with been in a market is positively associated with performance)performance)
nn This advantage is particularly strong for partial This advantage is particularly strong for partial acquisitionsacquisitions
nn However, it is not consistent across countries However, it is not consistent across countries suggesting that it is inherently linked to the general suggesting that it is inherently linked to the general performance of the countryperformance of the country
Competition for Competition for Markets vs. Markets vs.
Competition in Competition in MarketsMarkets
StudyStudy design and motivationdesign and motivation
•The motivation of this study is to explore the influence of multi-market opportunities on the competitive interaction between MNE´s
•The study utilizes secondary data sources on all breweries in 9 countries in Central and Eastern Europe
Ownership advantages
Shared entry options (Miller & Folta, 2002)
FMA Competition to enter first
Competitive market entryCompetitive market entry
• Moving first is associated with a payoff YP
• Moving last is associated with a payoff YF
• And naturally the payoff YP > YF
There should not be a systematic wayof benefiting from moving first under
competition
Auction Rent is absorbed by the local owner
Competing on entry time
First mover takes on a proportionally higher risk/costs
MarketMarket clearing clearing mechanismmechanism
Hence payoff YP = YF
A B C D
Z P
Players
Markets
Multiple MarketsMultiple Markets
Homogeneous Markets
Heterogeneous Markets
Simultaneous entry in all markets
Each market entry decision is taken in isolation
Ownership advantages and entry barriersOwnership advantages and entry barriers
nn The four major players Carlsberg, Heineken, SABMiller The four major players Carlsberg, Heineken, SABMiller and INBEV accounts for roughly 70% of the total sales and INBEV accounts for roughly 70% of the total sales in the regionin the regionnn Suggest strong ownership advantagesSuggest strong ownership advantages
nn Entry through acquisitions, partial acquisitions or Entry through acquisitions, partial acquisitions or staged acquisitions was the norm (staged acquisitions was the norm (LarimoLarimo, , MarinovMarinov & & MarinovaMarinova, 2006), 2006)nn Suggest barriers to entrySuggest barriers to entry
nn Only 1 of 9 markets had more than 3 major firms Only 1 of 9 markets had more than 3 major firms presentpresentnn Suggest preemptionSuggest preemption
Market presence and entry timingMarket presence and entry timing
199119916644CarlsbergCarlsberg
199119915544INBEVINBEV
199319934411SABMillerSABMiller
199119915522HeinekenHeineken
First entry in First entry in the regionthe region
N marketsN marketsFirst moverFirst mover
MarketMarket clearing of FMAclearing of FMA
nn All 4 belong on the list of the 10 largest brewers in the worldAll 4 belong on the list of the 10 largest brewers in the worldnn The industry face stagnant demand in its primary markets The industry face stagnant demand in its primary markets
creating a need to seek elsewhere for growth opportunitiescreating a need to seek elsewhere for growth opportunitiesnn All 4 have entered relatively early (1991All 4 have entered relatively early (1991--1993)1993)nn All 4 have strong market presence in the regionAll 4 have strong market presence in the region
The evidence would suggest a competitive environment similar to what Miller and Folta (2002) refers to as
”shared entry options”
leading to an erosion of the performance advantages associated with early entry
3030NN
5.953**5.953**6.4826.482(9.179)(9.179)
15.20015.200(9.866)(9.866)
Return onReturn onsalessales
18.184***18.184***16.13716.137(11.945)(11.945)
35.46135.461(11.989)(11.989)
MarketMarketshareshare
12.693***12.693***0.1050.105(0.315)(0.315)
0.6360.636(0.505)(0.505)
MarketMarketleadershipleadership
F testF testFollowersFollowersFirst moversFirst movers
Order of entry and performanceOrder of entry and performance
*** p<0.01, ** p<0.05, * p<0.10.
Multimarket competition with resource Multimarket competition with resource constraintsconstraints
Z P
A
B
The payoff from moving first in market A (AP) is given by the payoff of moving first in market B (BP)
Main proposition Main proposition --Competition for marketsCompetition for markets
nn The combination of resource intensive investments and multiple The combination of resource intensive investments and multiple market opportunities suggest that opportunity costs are high. market opportunities suggest that opportunity costs are high. Since first mover advantages are strong this would suggest that:Since first mover advantages are strong this would suggest that:
nn As long as alternative market opportunities are available, firmsAs long as alternative market opportunities are available, firms will will pursue these rather than follow!pursue these rather than follow!
Derived propositionsDerived propositions
nn Miller and Miller and FoltaFolta (2002) can you derive superior returns on shared (2002) can you derive superior returns on shared entry options?entry options?
nn Competition to get first in individual markets will not erode thCompetition to get first in individual markets will not erode the e performance advantage of moving first!performance advantage of moving first!
nn Since firm Z will enjoy FMA in market A, but firm P will enjoy Since firm Z will enjoy FMA in market A, but firm P will enjoy FMA in market B then we get that:FMA in market B then we get that:
nn The narrower the geographical market definition the greater the The narrower the geographical market definition the greater the likelihood of observing first mover performance advantages!likelihood of observing first mover performance advantages!
Resource rationingResource rationing
nn MascarenhasMascarenhas (1997) found that the initial resource commitment (1997) found that the initial resource commitment was less important for the performance of the venture than was less important for the performance of the venture than moving first as such. Moreover Mills (1988) found that it would moving first as such. Moreover Mills (1988) found that it would be possible to secure a FMA by an infinitely small investment asbe possible to secure a FMA by an infinitely small investment aslong as the follower cannot leap frog the leader and threats arelong as the follower cannot leap frog the leader and threats arecostly. This suggest that:costly. This suggest that:
nn Firms will seek to ration their resources to acquire first moverFirms will seek to ration their resources to acquire first moveradvantages in a larger number of markets by pursuing low advantages in a larger number of markets by pursuing low commitment/resource entry modes!commitment/resource entry modes!
Exercising threats, why do firms follow?Exercising threats, why do firms follow?
nn In Mills (1988) view firms do not follow because they can’t win.In Mills (1988) view firms do not follow because they can’t win.However, they might just do so to force the leader to forfeit hiHowever, they might just do so to force the leader to forfeit his s option value (Miller and option value (Miller and FoltaFolta, 2002):, 2002):
nn Even when threats are costly firms may exercise them in order toEven when threats are costly firms may exercise them in order to tie up tie up the leader’s resources!the leader’s resources!
nn And conversely, when multiple market opportunities exists, firmsAnd conversely, when multiple market opportunities exists, firms may may pursue FMA in a larger number of markets by entry with small pursue FMA in a larger number of markets by entry with small commitments of resources in comparatively smaller or less attraccommitments of resources in comparatively smaller or less attractive tive markets!markets!
ImplicationsImplications
nn The decision to enter a given market will often NOT be The decision to enter a given market will often NOT be independent of other market opportunities. Hence FMA studies independent of other market opportunities. Hence FMA studies should try to incorporate these alternative market should try to incorporate these alternative market opportunities/opportunity costsopportunities/opportunity costs
nn Follower operations might not be intended to overtake the Follower operations might not be intended to overtake the leader, hence FMA could potentially be overestimatedleader, hence FMA could potentially be overestimated